Internet and Network Economics

Volume 6484 of the series Lecture Notes in Computer Science pp 523-530

Discrete Strategies in Keyword Auctions and Their Inefficiency for Locally Aware Bidders

  • Evangelos MarkakisAffiliated withDepartment of Informatics, Athens University of Economics and Business
  • , Orestis TelelisAffiliated withDepartment of Computer Science, University of Liverpool

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We study formally discrete bidding strategies for the game induced by the Generalized Second Price keyword auction mechanism. Such strategies have seen experimental evaluation in the recent literature as parts of iterative best response procedures, which have been shown not to converge. We give a detailed definition of iterative best response under these strategies and, under appropriate discretization of the players’ strategy spaces we find that the discretized configurations space contains socially optimal pure Nash equilibria. We cast the strategies under a new light, by studying their performance for bidders that act based on local information; we prove bounds for the worst-case ratio of the social cost of locally stable configurations, relative to the socially optimum cost.